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Jakarta Post

Govt readies new direct scheme for 'problematic' LPG subsidy

  • Stefanno Reinard Sulaiman

    The Jakarta Post

Jakarta   /   Fri, March 15, 2019   /   07:45 am
Govt readies new direct scheme for 'problematic' LPG subsidy Residents of Bogor, West Java, stand in line to buy 3-kilogram canisters of subsidized liquefied petroleum gas (LPG) in this file photograph. ( Triyadi Bempah)

The problems surrounding the subsidized liquefied petroleum gas (LPG) seem to have no end. 

One critical issue is in ensuring that the subsidized LPG ends up only in the hands of eligible beneficiaries: the poor. At present, even the wealthy can easily purchase the 3-kilogram canisters of subsidized LPG at discounted prices through online marketplaces.

The government has come up with a solution: Replace the indirect LPG subsidy with a direct subsidy.

Unfortunately, the people must wait at least another year, pending trials of the direct subsidy scheme, as well as the presidential election on April 17.

Ruddy Gobel, the head of communications and partnership of the National Team for Accelerated Poverty Reduction (TNP2K), said the direct subsidy of LPG would be trialed in seven municipalities and regencies for completion in June.

The trials are to be conducted in the municipalities of Bukittinggi in West Sumatra, Tomohon in North Sulawesi, North Jakarta in Jakarta, and Kediri City in East Java, as well as the regencies of Bogor in West Java, Tangerang regency in Banten and Gunung Kidul in Yogyakarta.

“After the trials, we will [draft] the regulations. The final decision on whether to implement this [scheme] or not will be up to the Energy and Mineral Resources Minister, and likely the President himself,” Ruddy told The Jakarta Post recently.

“We cannot assure that nationwide implementation will be done this year, but if we can kick it off this year, the government could save more than Rp 50 trillion [US$3.49 billion] in the state budget from [misdistribution]," he said. 

Established in 2010, the TNP2K involves almost all ministries and is chaired by the Vice President. It is responsible for selecting eligible beneficiaries with the Social Affairs Ministry and for conducting trials of the direct subsidy scheme.

The Energy and Mineral Resources Ministry is leading the new subsidy scheme. 

Ruddy said preparations for trialing the direct subsidy scheme had started in December 2018, with the first trial to commence in April and the second trial in early May. The trials would involve 14,193 households. 

“Right now, we are still registering [the beneficiaries],” he said.

The direct subsidy that will replace the indirect subsidy of 3 kg LPG canisters is to involve the use of biometric authentication like facial and fingerprint recognition. Facial recognition was critical, said Ruddy.

The TNP2K has three possible methods for implementing the direct subsidy: e-vouchers sent as text messages, biometric authentication and a combination of electronic identity (e-ID) cards and biometric authentication. 

Ruddy said the President wanted the new scheme to operate under a low budget, so it would not require the production of a special card like the Family Hope Program (PKH) card or the Smart Indonesia Card (KIP). 

“We will decide which method is the most efficient. The nationwide implementation could use only one of the three methods or a combination,” he said. 

Once the direct subsidy scheme was implemented, the LPG would be sold at a market price of around Rp 30,000 per 3 kg canister, with a discounted price for beneficiaries after sellers have authenticated their identities. 

If the biometric method was used, said Ruddy, beneficiaries would only need to be authenticated by the LPG agent to receive the special discounted price. 

If the e-voucher or e-ID card methods were used, beneficiaries only needed to present their voucher or card to the sellers to receive the discounted price.

"[Beneficiaries] only need to pay the discounted price,” explained Ruddy. 

Muhammad Rizwi, the director for oil and gas business development at the energy ministry, said the implementation of the new subsidy scheme would also depend on the April election. 

“We will wait at least until after the elections [...] for the political climate to stabilize. Because we don’t know [who will win the presidential election],” he said, adding that the ministry would still push for the new scheme no matter who was elected.

Rizwi expected that the full implementation of the scheme would only be possible in 2020, given the political uncertainty. This year, the government would focus on the trials and only allocate a budget for the scheme next year. 

The ministry’s data estimates that 26 million households are eligible for the direct LPG subsidy. The final figure could be higher, as this does not include other beneficiaries like micro businesses and fishermen. 

In its preliminary discussion, the ministry has already reached a decision on the direct subsidy scheme – albeit an unofficial one – that a single household will be eligible for three 3 kg canisters of LPG per month. Meanwhile, micro businesses will be eligible for nine 3 kg canisters per month and fishermen will be eligible for 10 canisters per month. 

Alleviating the misdistribution of the indirect LPG subsidy is vital to reducing LPG imports. The current national demand of LPG is 6.5 million metric tons, of which 70 percent is imported, with projections indicating steady growth of consumption.

Energy experts believe the direct subsidy scheme could help curb the distribution problem. However, they said obstacles remained in implementing the scheme nationally. 

Fabby Tumiwa, the executive director of local energy watchdog Institute for Essential Services Reform (IESR), said the government must ensure the availability of 3 kg canisters of LPG in all regions.

“If the government target [is to distribute] the 3 kg LPG only for poor people, then availability and the people’s access to the LPG must not be an issue,” he told the Post

“The government also has to ensure that only the designated agents that have data [on beneficiaries] are allowed to sell the 3 kg LPG,” said Fabby.

Energy economist Fahmy Radhi of Gadjah Mada University said that non-beneficiaries could potentially cut into 10 percent of the subsidy, as was the case with the rice for the poor (raskin) subsidy program.